Northern Orion Shareholders Told To Reject Yamana Bid

Includes: AUY, NTO
by: FP Trading Desk

Meridian Gold Inc. (MDG) isn’t the only one rejecting Yamana Gold Inc.’s (NYSE:AUY) proposed tie-up with both Northern Orion Resources Inc. (NTO) and Meridian. Raymond James analyst Tom Meyer is advising Northern Orion shareholders not to tender to the proposed three-way merger, saying the value being ascribed to Northern Orion “falls short of reasonable.”

He cited US$600-million in potential synergies from the Agua Rica and Alumbrera projects in Argentina, compared to estimates of roughly US$300-million previously.

Northern Orion has a 12.5% stake in Alumbrera, which is considered one of the world’s largest copper and gold mining operations, and among the world’s lowest cash cost copper producers. Xstrata Plc has a 50% stake and Goldcorp (NYSE:GG) the remaining 37.5%.

Northern Orion has 100% ownership of Agua Rica.

Mr. Meyer is raising his price target on Northern Orion shares to C$8 from C$6.50 after the company revealed details of these synergies in a recent conference call. He also thinks the positive trend for gold and copper prices, as well as consolidation in the mining sector, should help Northern Orion shares.

His expects Agua Rica will eventually be developed jointly with Alumbrera.

“By our estimates, Agua Rica is the largest undeveloped copper project that is not ‘yet’ owned by a major diversified mining company," Mr. Meyer said in a research note.